With April 6th fast approaching and the new "freedoms" in UK pensions becoming available, Statutory Instrument 673 governing QROPS was issued.
The instrument qualified what QROPS would and would not be able to do and focused much attention on whether QROPS would be allowed the same 'freedoms' as UK schemes.
Extracts below from an article written by Ruth Gillbe at FT Adviser published on Friday 27th March seems to confirm that only Malta (and other EU member states) will be allowed to offer the same options in the way of pension payments as the UK, and that for the time being at least, Gibraltar, Isle of Man, Channel Islands etc will be prohibited.
'A statutory instrument passed in the House of Commons earlier this month reversed a previously stated policy intention to allow qualifying registered overseas pension schemes from mirroring the flexibilities being granted in the UK from next month.
The instrument retained the '70 per cent rule', which requires this percentage of a person's fund to be ringfenced to provide a lifetime income. HMRC has said it is working on a replacement for the rule.
Although the rule does not affect European Union member states, only Malta has so far passed primary legislation to allow free pension access. FTAdviser has been told by one expert that even schemes there will be unable to use the freedoms until permission is allowed by the country's financial services regulator.
In order to utilise pension freedoms without compromising the UK tax relief, both HMRC rules and the pension legislation in the relevant jurisdiction must allow open access in the same way as in the UK for these schemes.
A senior executive at the financial regulator within a non-EU jurisdiction, who asked not to be named, told FTAdviser the recent announcements have come as a surprise, as Qrops are designed to replicate as closely as possible the arrangements for personal pension schemes in the UK.
He said HMRC and the Treasury are looking to ensure that the tax to be applied by different Qrops jurisdictions on flexible drawdowns in excess of the tax-free pension commencement lump sum does not encourage activity or marketing with which they would be uncomfortable.
Head of product and business development at Qrops provider London and Colonial, said it was a "complete surprise" to hear these changes, as the firm was fully expecting Qrops to be brought in line with the rest of the UK.
He added it was his understanding that this decision applies to all Qrops jurisdictions worldwide, noting that they are simply refusing to allow Qrops to adopt UK style pension freedoms at the present time. "We can only hope that this is a very temporary measure and that a more level playing field will be created in the very near future."
For the Isle of Man, Simon Pickering, head of retail financial services for the Department of Economic Development, said that the island has its own pension legislation, so it would not be affected by the new pension freedom rules about to come in in the UK.
He added: "The island would have to consider new primary legislation if it wishes to follow the UK stance on pension freedoms."
Michael Ashton, senior executive at Gibraltar Finance, said: "We are quite surprised at having gone through the process of putting out draft consultation etc. and getting it pulled back.
"It seems to us that from 6 April we are going to be excluded from offering a fully flexible drawdown option." '
Whilst encashing your entire pension fund in retirement may seem a good idea, careful thought and qualified/regulated advice should always be taken. The consequences of making a bad decision could be punitive in terms of tax, and costly in later life. Having the known flexibility to do so, re-enforces Malta as the Jurisdiction of Choice for QROPS.
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